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Ping An Unit Buys $2 Billion Stake in Developer

The investment arm of Ping An Insurance paid $2.07 billion for 580 million shares of Shanghai-listed real estate developer China Fortune Land Development.
The investment arm of Ping An Insurance paid $2.07 billion for 580 million shares of Shanghai-listed real estate developer China Fortune Land Development.

The parent of China Fortune Land Development Co. Ltd. (CFLD) has sold 580 million shares of the Shanghai-listed real estate developer to the investment arm of Ping An Insurance for $2.07 billion.

The sale, which amounted to 19.7% of CFLD’s total shares, leaves its parent, China Fortune Land Development Holding, with a 42.67% stake in CFLD, down from 61.67% before the sale, according to a filing with the Shanghai Stock Exchange on Tuesday. On the other side, the sale increases Ping An Asset Management Co. Ltd.’s stake in CFLD to 19.88%.

The deal was made at a price of 23.655 yuan ($3.57) per share, 12.03% lower than CFLD’s average closing price in the 30 days leading up to the deal.

CFLD has been an active front-runner in China’s industrial urbanization. Founded in 1998, it is involved in the investment, development and management of industrial parks, according to its website. Last year, the company reported it had 152.2 billion yuan in sales and 380 billion yuan in assets.

Ping An Asset Management and its parent, Ping An Insurance Group, China’s second-largest insurer, have been investing in the real estate sector since 2015, purchasing stakes in several property companies such as Country Garden Holding Co. Ltd., Sunac China Holdings Ltd. and CIFI Group Co. Ltd.

Ping An Asset Management had 2.67 trillion yuan in assets under management at the end of 2017, making it the largest asset manager in China that is not owned by the state, according to its website.

Many Chinese cities have imposed a flurry of homebuying restrictions since March 2017 to curb the rapid growth in housing prices. Those restrictions have taken a toll on real estate developers’ cash flow, said real estate analyst Zhang Hongwei.

Under present circumstances, real estate developers prefer to raise funds by selling stock because the country’s ongoing deleveraging campaign has made it harder to get bank loans and issue debt, Zhang said.

CFLD’s balance sheet has been under scrutiny this year. On April 13, the Shanghai Stock Exchange raised 18 questions about aspects of the company’s 2017 financial report, including the real cash return rate on its industrial parks, sluggish home sales and its leverage ratio.

CFLD addressed the concerns by stating that the company’s shortcomings in operational cash flow last year resulted from rapid expansion of its industrial park businesses and a decline in revenue from home sales. It said the situation will improve this year.

Moreover, because local governments are its biggest clients, CFLD’s accounts receivable have ballooned because government payments are often slow to come in. By the end of the first quarter, the total sum due to the company had reached 24.3 billion yuan, up by 5.4 billion yuan from the end of 2017.

If the company continues to spend at its current rate, its coffers could run dry by the end of this year. Its cash flow and cashable assets had fallen to 44.5 billion yuan by the end of the first quarter, down by 19.7 billion yuan from the end of last year.

CFLD’s shares closed down 2.01% on Wednesday at 26.76 yuan, after jumping 9.68% on Tuesday.

Contact reporter Pan Che (chepan@caixin.com)

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